Economic Dodgeball

This is long overdue:

President Obama yesterday announced a major offensive against businesses and wealthy individuals who avoid U.S. taxes by parking cash overseas, a battle he said would be fought with new tax laws, new reporting requirements and an army of 800 new IRS agents.

During an event at the White House, Obama said his proposal would raise $210 billion over the next decade and make good on his campaign pledge to eliminate tax advantages for companies that ship jobs abroad.

"I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens," Obama said, flanked by Treasury Secretary Timothy F. Geithner and Internal Revenue Service Commissioner Douglas Shulman.

The nation's largest business groups immediately assailed the proposal, arguing that it would subject them to far higher taxes than their foreign competitors must pay and ultimately endanger U.S. jobs. Key Democrats were cool to the plan, and said Obama's ideas should be considered as part of a broader effort to streamline the nation's complex corporate tax code.

It's about time, says me.

The logic is very simple: if you incorporate in the largest economy on the planet and do not move your entire operation overseas (including the executive suites), then you should be subject to US tax on your income.

If you live in the United States and are a United States citizen, then you should be subject to United States tax on your income.

Period. End of discussion.

For far too long it's been way too easy for corporations and people to shelter income by offshoring it. That is, set up a foreign subsidiary (or bank account) and conduct business under that guise. You were exempt from paying tax on any of that income until you repatriated it.

Bollocks. There's a clear economic benefit from that income, even if it remains overseas, in terms of stock price and annual results. So either one of two things must happen: either that income doesn't count towards your annual results, or you owe taxes on it.

For you lay folks out there, please understand that there is little connection between a company's annual income as reported to shareholders and what it claims on taxes. This move is a major step towards what should be the ultimate goal: if you claim earnings to the public, then you owe taxes on those earnings and you should not be able to manipulate your taxable income so easily.

After all, if I tried to shelter American income offshore, I'd be hauled before a Tax Court in no time. But MicroSoft or ExxonMobil or Halliburton can pretty much with a straight face claim American income for the benefit of their shareholders and stock price, but suddenly hold out empty pockets for the tax man.

That's not right and it's not fair and must change. So kudos to President Obama for doing the right thing.

Greed Is God

This week seems to be my week to explore humanity and the emotional states underlying our current national crises of the economy and the political atmosphere.

So let's take this from a different perspective and try to tie them together.

Fortuitously, I was reading an article in National Geographic magazine about the burgeoning oil sand industry in Canada.

Lest you think that natural resource exploitation and the ravaging of native lands only happens in tropical climes, you need to read that article. However, it's this quote that caught my eye and got me thinking:

"It's my belief that when government attempts to manipulate the free market, bad things happen," Premier Stelmach told a gathering of oil industry executives that year. "The free-market system will solve this."

But the free market does not consider the effects of the mines on the river or the forest, or on the people who live there, unless it is forced to. Nor, left to itself, will it consider the effects of the oil sands on climate. Jim Boucher has collaborated with the oil sands industry in order to build a new economy for his people, to replace the one they lost, to provide a new future for kids who no longer hunt ptarmigan in the moonlight. But he is aware of the trade-offs. "It's a struggle to balance the needs of today and tomorrow when you look at the environment we're going to live in," he says. In northern Alberta the question of how to strike that balance has been left to the free market, and its answer has been to forget about tomorrow. Tomorrow is not its job. 

Today v. tomorrow. The now v. the then. Hmmmm...sounds familiar...

And this is the struggle that President Obama as well as every other world leader faces today, the juggling of the efficiencies of the free market against the need to protect the environment and the people, to state the general case.

There are no simple answers to be had here, as much as the conservatives would like you to believe. They want you to believe that because in an environment (pun intended) that is bereft of ideas, we cling to the past, to ideas that work sometimes if at all. The simple answer is to let the market sort it out.

I've said before that the power of the market, the real strength of it, is to weed out weakness, to promote a sort of economic evolution.

When it works well, it's extremely good at this. I don't think the market has worked well since the Reagan administration, and I'm not completely sure why.

Certainly, with Reagan, we saw the fledgling crony capitalist markets. The amount of money suddenly available in the junk bond market, the extraction of mythical valuations of "goodwill" and the raping of pension plans for the cash they contained, all combined to create barriers to entry in industries as diverse as banking and retail.

If you're wondering why Wal-Mart is ubiquitous, but you can't find an Alexander's or a Gimbel's (sorry, I'm Noo Yawk oriented), this is why: they were swept up in junk bond mania.

At first, this was an efficiency exercise. Truly there were companies that were wasting resources, paying, you know, salaries and pensions, among other things. The wave of mergers and acquisitions probably, at first, cut a lot of fat out of the marketplace, setting the stage for the enormous growth of the 1990s.

However, all good things become bad in due time, and the wolves howling at the door stopped wanting just fat and wanted the real meat.

The market, rather than be efficient, became cannibalistic.

We've seen this time and time again in America: they call it a "bubble" but in truth, it's the self-feeding cycle of cannibalism, developed through what Greenspan called "irrational exuberance".

Another Reagan-era monstrosity is the flow of corporate money into politics. A nonsensical and absurd ruling (1978 Boston v Bellotti) by the SCOTUS allowed that corporations, which are basically money magnets, have the same free speech rights as persons, and so should be allowed to contribute to politicians and to have a say in the running of the country.

All that money that had been paid out in dividends and re-invested in making the company more efficient and more responsive to their customers now became a cudgel to force legislators to bend the rules of commerce in their favor.

And now we have what we have: a Congress beholden to special interest groups, because the rewards of all that contributed money is more money to spend on advertising, which means the price of campaigning skyrockets, which means the only way a person can afford to run (even Obama) is to suckle at the teat of corporate America.

The Chinese have a saying: all feasts must have an end.

As well, governmental regulation has its good points, and its absurdities. Too much regulation can stifle creativity. Too little regulation, and you get salmonella in your peanut butter. The tendency in this swing of the pendulum is to enforce "just right sized" rules, but eventually, there will be too many and they will be too burdensome.

So which becomes the bigger burden? Too much regulation or too much money floating around?

Neither. Both. And there's the problem.

We'll continue this whipsaw back and forth until someone has the gumption to stand up and say "enough". No more corporate political contributions, get that stupid decision overturned and finally work for the people, the individuals, and not the aggolmerations of capital and political power that have worked to effectively disenfranchise the entire nation.

This is not a Republican issue (altho it tends to affect Republican administrations more than Democratic) or a Democratic issue, but a national issue.

Greed is god in this country, and it's time to tear down the idols and expose the feets of clay.